...Zumwald Case Analyse Taochang LIU S51023 Brief In company Zumwald, because of the high decentralization policy, there is a dispute for product X73 mainly between two divisions—ISD and Heidelberg. ISD designed a new system which need a display, and ISD can source it internally from Heidelberg or externally. Finally ISD decided to buy displays externally which made Heidelberg livid. Analyse 1. As ISD intended to buy from Display Technologies Plc(TDP), and Bogardus NV’s price is higher than TDP, I mainly compare Heidelberg with TDP. To make the decision, we should see the problem in the company’s level, thus I compare the contribution margin of two choice. | Internal | External | € | ISD | Heidelberg | ECD | ISD | Revenue | 340000 | 140000 | 21600 | 340000 | Fixed cost | 117000 | 55000 | 9000 | 117700 | Variable cost | 26300 | 50000 | 9000 | 26300 | Cost of component | 72000+140000 | | | 72000+100500 | Contribution margin | 101700 | 90000 | 12600 | 141200 | Contribution margin to Zumwald | 204300 | 141200 | It is obvious that although contribution margin to ISD division is much more when sourcing externally, the contribution margin to Zumwald is more when sourcing internally. 2. TDP is a company who just entered the market and have no relationship with Zumwald before, we should concern about its quality issue. And also, after the aggressive price strategy to obtain the market share, TDP may increase the price in the future. Solution ...
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...Case Analysis : Zumwald AG Zumwald AG is a German company specialized in the production and retail of medical equipment. In August 2002, the launch of a new ultrasound imaging system, X73, triggered a transfer pricing dispute between two of its six divisions, ISD and Heidelberg. A third division, ECD is indirectly involved because it usually provides some components to Heidelberg. The origin of the dispute between Heidelberg and ISD is the choice of supplier for some components of the X73. Zumwald has a culture of being highly decentralized : it is organized in six operating divisions and partially vertically integrated however the company policy is to let division managers choose their suppliers internally or externally. Nonetheless, in the case of the X73, the division manager of Heidelberg, Paul Halperin, challenges the choice made by ISD managers to supply themselves externally for obvious cost-‐‑based motivations. The managing director of Zumwald, Mr. Rolf Fettinger, is asked to help settle the dispute. The situation is very tricky for Mr. Fettinger. Indeed, freedom of sourcing has been the policy of the company as of now and a settlement in favor of Heidelberg could create a disturbing precedent...
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...Hunaut Zumwald AG Case Context: Zumwald produces systems for medical diagnosis and generates 3 billion Sales. 3 operational divisions vertically integrated with a strong decentralization of decisions. This means that the Transfer price is the market price. That is the base of our problem here. Divisions have the right to buy and to sell the components and products outside the global firm. Basic map of the firm: ECD -> Heidelberg -> ISD 2 divisions are in conflict: ISD and Heidelberg The first problem is a management problem: the organisation of the group is vertical and decisions are decentralised (managers have the right to outsource): this is according to ma a contradiction. When your firm is vertically integrated, it should be clear that you buy the components to your subsidiary. They are 3 profit centres, and economic indicators should not be taken into account for some division’s decisions. This is exactly the case for Peugeot who has bought the supplier called Faurecia, to secure the supply of components for their cars. Key points for an intelligent decision: * The goal should be the maximization of the firm’s profit as a whole. The ideal would be to find a congruence goal * We should not consider sink cost (a point that ignore Paul) * We should also consider the quality and security of the supplier We will consider 2 scenarios, if ISD buy the components to Display Tech and to Heidelberg: BUY to DISPLAY | ISD | Zumwald | Sales...
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...Zumwald AG case Zumwald produced and sold a range of medical diagnostic imaging systems, biomedical test equipment and instrumentation. The firm has a divisional structure and a highly decentralized basis. Managers of each division have lot of autonomy in decision-making and they are compensated based on achievement of budgeted targets and ROIC. Moreover, Zumwald is vertically integrated (some divisions produce components that are essential to the others). Thus three divisions involved in the dispute are very interdependent because both Heidelberg and ECD can manufacture components for ISD’s new product and both of these two divisions are dependent on business from inside of the company to succeed. (That does not seem coherent with the fact that the company allow department managers to outsource if they want) Concerning the cost of the component at stake, Display technology PLC is far more competitive than Heidelberg. Heidelberg can’t afford to cut the price of its product below cost to match the lowest offer because it would destroy the division’s ROIC. In the same way, Mr. Bauer doesn’t want to buy the displays at prices above market levels. The divisions are profit centers and the problem is caused by the performance evaluation system based on financial targets. Considering the fact that my criteria is to maximize the profitability of Zumland as a whole, the issues at stake in this case are: - The lack of cooperation between the divisions to make decisions...
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...Session 4 assignment: Zumwald AG First of all we need to understand the context and the characteristics of this form, in order to take the best decision. For the information we have, the main characteristics of our company that are important to take a decision in this case are: * Highly descentralized basis / managers of each division have considerable autonomy * Bonuses assigned based on each division’s achievement of budgeted targets for ROIC and sales growth * Partly vertically integrated / Division managers were allowed to source their components externally * 3 operating divisions involved The main objective when we take the decision is to maximize the benefit of the whole company, but we have to take into account other arguments like the autonomy of the managers and their motivation, the success of this new product… At this point, we would like to analyse the impact for the whole company in both cases: external purchasing vs. internal purchasing (we have to take with contributions because fixed costs are irrelevant). External purchasing scenario: | ECD | Heidelberg | ISD | Zumwald | Turnover | - | - | 340,000 € | 340,000 € | Variable Costs | - | - | 26,300 €72,000 €100,500 € | 26,300 €72,000 €100,500 € | Fixed Costs | - | - | 117,700 € | 117,700 € | Contribution | - | - | 141,200 € | 141,200 € | Internal purchasing scenario: | ECD | Heidelberg | ISD | Zumwald | Turnover | 21,600 € | 140,000 € | 340,000 € | 340,000 €...
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...The starting point of the analysis it to find out what is best for the single divisions and what is best for Zumwald AG as a whole instead. In order to do so, I examined the cost structure of the various divisions and made a contribution analysis under the two possible scenarios: 1) ISD outsourcing from Display Technologies Plc; 2) ISD sourcing internally from Heidelberg. As shown below in exhibits 1, 2 & 3, Zumwald AG clearly benefits from internal sourcing. The difference is €63100 of lost contribution in case of outsourcing. Heidelberg’s and ECD’s orders would be lost under this scenario. On the other hand, ISD is better off with the outsourcing option, achieving €39500 in savings. Alternatively, the same outcome can be found analyzing the cash outflows for Zumwald AG under the two viable options (see exhibit 4 below). If sourcing internally, the cash outflow is given by the combined VC for Heidelberg and ECD, which amount to €37400. Conversely, if outsourcing, the cash outflow is simply given by the price offered by the supplier. Any transfer price greater than €37400 would lead to a positive contribution for Heidelberg and/or ECD. Different total contribution allocations would depend by the internal transfer prices for the divisions. Therefore, Mr. Fettinger must deal with the dispute and be sure that the interests of the various managers are aligned towards the common wellbeing of the firm. Given the current organizational structure and the responsibilities...
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...------------------------------------------------- Course OutlineDepartment of Accounting and FinanceSchool of Business and Economics | ACCT 4250-01 Advanced Management Accounting (3,0,0) MWF 1:30-2:20 PM A&E 208 Instructor: Dr. Laura Jean Kreissl Office: IB 2060 Office Hours: please check office door Email: lkreissl@tru.ca Email is strongly recommended over voicemail as it is checked more frequently Phone/Voice Mail: 250-852-7675 Last Updated: November30, 2015 Calendar Description Building on ACCT 3250: Intermediate Management Accounting, students explore the integrative and interdisciplinary role of management accounting and its contribution to the strategic management process and the provision of quantitative and non-quantitative information for planning, control, and decision making. Topics include management control systems; results controls, action, personnel and cultural controls; control system tightness; control system cost; designing and evaluating management control systems; financial responsibility centers including transfer pricing; planning, and budgeting; incentive systems; financial performance measures; the myopia problem; uncontrollable factors; corporate governance; and ethical issues. | Educational Objectives/Outcomes Upon completing this course, students will be able to: 1. Locate the role of Management Control Systems (MCS) in both strategy and operations. 2. Describe results control and its applications. ...
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...KTH Homework assignment ME2028 Behavioral Management Control Andreas Torbiörnsson 09 How could each of the control problems at Leo´s Four-Plex Theater be solved with the use of Cultural control? Cultural control is a type of control that encourages mutual monitoring1 and it builds a lot upon group pressure. The main idea of cultural control is to get the employees to watch over each other and to create a culture that has certain things that you specifically do or don’t do. It aims to set up shared beliefs and norms in that company, rules of behaving that everyone abides by. The case of Leo’s Four-Plex Theater has a number of control problems that I can identify. They are as follows: Discrepancies in the cash counts of the ticket booths. Most likely caused by a lack of motivation that leads to employee theft and neglecting of duties. The employees working in the refreshment stand sometimes do not collect cash from customers or doesn’t register the sale on the cash register. This is also most likely caused by a lack of motivation, it can’t be lack of direction since they know what they should do and neither could it be a personal limitation since they know how to operate the machine and how to collect payment. The problem seems to be that they don’t know why they should collect the cash. Test counts reveal that the number of tickets sold or put into the stub box isn’t equal to the amount of customers entering and leaving the theater. This seemed to be caused by three...
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...Management control systems rk assignment ME2028 Behavioral Management Control Andreas Torbiörnsson 09 How could each of the control problems at Leo´s Four-Plex Theater be solved with the use of Cultural control? Cultural control is a type of control that encourages mutual monitoring1 and it builds a lot upon group pressure. The main idea of cultural control is to get the employees to watch over each other and to create a culture that has certain things that you specifically do or don’t do. It aims to set up shared beliefs and norms in that company, rules of behaving that everyone abides by. The case of Leo’s Four-Plex Theater has a number of control problems that I can identify. They are as follows: Discrepancies in the cash counts of the ticket booths. Most likely caused by a lack of motivation that leads to employee theft and neglecting of duties. The employees working in the refreshment stand sometimes do not collect cash from customers or doesn’t register the sale on the cash register. This is also most likely caused by a lack of motivation, it can’t be lack of direction since they know what they should do and neither could it be a personal limitation since they know how to operate the machine and how to collect payment. The problem seems to be that they don’t know why they should collect the cash. Test counts reveal that the number of tickets sold or put into the stub box isn’t equal to the amount of customers entering and leaving the theater. This seemed...
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...Syllabus Certified General Accountants Association of Canada 100 – 4200 North Fraser Way Burnaby, British Columbia Canada V5J 5K7 www.cga-canada.org © CGA-Canada, 2013 All rights reserved. These materials or parts thereof may not be reproduced or used in any manner without the prior written permission of the Certified General Accountants Association of Canada. Printed in Canada ISBN for an individual volume: 978-1-55219-599-4 About CGA-CANADA _________________________________________ CGA-Canada today The CGA designation focuses on integrity, ethics, and the highest education requirements. Recognized as the country’s accounting business leaders, CGAs provide strategic counsel, financial leadership, and overall direction to all sectors of the Canadian economy. The Certified General Accountants Association of Canada — CGA-Canada — sets standards, develops education programs, publishes professional materials, advocates on public policy issues, and represents CGAs nationally and internationally. The Association represents 75,000 CGAs and students in Canada, Bermuda, the Caribbean, Hong Kong, and China. Mission CGA-Canada advances the interests of its members and the public through national and international representation and the establishment of professional standards, practices, and services. A proud history CGA-Canada was founded in Montréal in 1908 under the leadership of John Leslie, vicepresident of the Canadian Pacific Railway. From the beginning, its objective...
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